Economy

Italy’s GDP to fall 5% in first quarter and 10% in the second

Country’s first bond sale since the coronavirus crisis saw orders of more than €100bn

The Chigi Palace in Rome, which is the official residence of the prime minister of Italy.

Tue Apr 21 2020 - 14:07

Italy’s economy contracted by around 5 per cent in the first quarter of 2020 from the previous three months and will shrink a further 10 per cent in the second quarter, the parliamentary budget watchdog (UPB) said on Tuesday, reflecting the lockdown to fight the coronavirus.

Deaths from the Covid-19 infection in Italy rose to more than 24,100 on Monday, the second-highest tally in the world after the United States.

The first half of the year will see a “decline in economic activity of exceptional intensity, never before recorded in the history of the (post-war) Republic,” UPB said in a statement.

Separately, Italy’s first bond sale via syndication since the coronavirus crisis saw orders of more than €100 billion on Tuesday, as it battles with the health impact and uncertainty over the economic support it will receive from the EU.

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Demand for the new five-year bonds and the reopening of a 30-year bond saw high demand despite the sale coming before a video meeting of the European leaders scheduled for Thursday that is aiming to reach a decision on the support package to help the European Union recover from the pandemic.

Demand for the five-year bond has topped €55 billion so far, including €7.45 billion of interest from lead managers, according to a lead manager update seen by Reuters.

The reopening of the 30-year has gathered demand of €45 billion, €6.05 billion of it from lead managers.

The bonds are being sold via syndication, when borrowers hire banks to target a larger investor base.

It is the first syndication from Italy since February 11th, before it became one of the countries worst affected by the pandemic.

The five-year bond is seeing record orders, receiving higher demand than the 15-year bond sold in February, which received over €50 billion.

The initial yield guidance was tightened for both bonds.

The guidance for the BTP bond expiring July 1st,2025, was revised at around 21 basis points over its outstanding February 2025 BTP bond, and at 9 basis points over a September 2049 note for the new tranche of its 30-year BTP.

The Rome government expects the economy to contract by around 8 per cent this year, two sources close to the matter told Reuters on Monday, underscoring the impact of the nationwide lockdown imposed to fight the coronavirus outbreak.

The Treasury, which manages one of the world’s biggest public debt piles, totalling €2.4 trillion ($2.60 trillion), said last week it would step up bond issuance to meet increased funding needs.

Italy is considering ways to encourage retail investors to buy government debt as it ramps up spending to fight the virus crisis, a source close to the matter told Reuters on Friday.

Last week Rome announced the sale of a new “BTP Italia”, an inflation-linked bond targeted at small savers which had been initially launched at the height of the euro zone crisis to offset falling foreign demand.

Italy has highest death toll in the world after the United States, with more than 24,000 dead and more than 181,200 confirmed cases on Monday. – Reuters

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